August 26, 2012

Nationalistic protests in China are flaring up across the
country Click here, having been stoked by a series of stand-offs between Chinese
civilian activists and Japanese authorities over the disputed Diaoyu钓鱼岛/Senkaku island in the South China
Sea. They are fuelled by high-profile moves of right-wing Japanese politicians
to formally showcase Japan's claimed sovereignty, including planting Japanese
flags on rocks and “nationalization” by purchasing this island from purported
private Japanese “owners”.

Historically, this tiny island outcrop dates back to the
Ming dynasty. It became annexed by Japan towards the tail-end of the nineteenth
century. According to both China and the
Taiwan governments, it reverted to Chinese sovereignty at the end of the Second
World War. However, in 1972 its administration was handed back by the U.S. to
Japan along with that of the Ryukyu Islands Click here.

Sino-Japanese relations have not been very cordial at the
best of times. In recent years, they have been further soured by visits of various
Prime Ministers (such as Koizumi) and other senior Japanese politicians to the Yasukuni
Shrine, which honours several Class A Japanese war criminals along with other Japanese
war deads. To the Chinese people, Japan, unlike Germany, has never really
wanted to atone for its war crimes.

The flare-up of nationalism is exacerbated by a feeling of
the Chinese people that even after "centuries of humiliation" at the
hands of foreign occupiers, the country in this day and age is still failing to
stand up to perceived “aggressors” . However,
this time around, rather than fanning nationalism as a means to bolster the
Party's rule as some academics have postulated (See,
for example, "China's New
Nationalism", Peter Hays Gries, University of California Press, 2005), the Chinese government is now
trying to restrain a rising tide of aggressive nationalism which threatens to
scuttle the nation's efforts to project an international image of peaceful
"rise" or "development".

In any case, the geopolitical dynamics in the South China
Sea have changed rapidly as China's military strength has been growing by leaps
and bounds, commensurate with the size of China's economy. An article in The
Economist (7 April, 2012) "China’s
military rise -The dragon’s new teeth” provides “A rare look inside the world’s biggest
military expansion" Click here.

China’s expanded military capabilities have materialized not
only in response to the geopolitical risks over Taiwan but also to those over strategic
Sea Lanes of Communication (SLOC) in the South China Sea. These are critical
conduits for essential energy and other resources vital to China’s economic
survival. Such risks are increasingly being felt over the so-called “First and
Second Island Chains” Click here encircling China’s maritime periphery marked by powerful
American naval presence.

U.S. Pivot to Asia

The perceived threats of U.S. military containment are
accentuated by America’s recent "Pivot to Asia", following Secretary
Hilary Clinton’s declaration of America’s new “Pacific Century”. Click here

This has ushered in renewed and enhanced formal and informal
U.S. military ties and large-scale joint naval exercises with China's
neighbours, including Japan, South Korea, Vietnam and the Philippines. In
particular, a US-Japan 37-day joint military drill off the coast of the Northern Marianas starting 21 August 2012 focussed
on simulations to re-take invaded islands. This was ostensibly aimed to counter
any Chinese offensive over the Diaoyu/Senkaku island, notwithstanding US-Japan denial.
While America officially pronounces neutrality over disputed territoriesin
the South China Sea, these military manoeuvres hardly create trust between
China and the United States.

Moreover, amongst this group of countries, a handful have
territorial disputes with the Middle Kingdom. They have now become emboldened
to proactively exert their rival sovereignty claims over such territories
as the Spratlys, the Paracels, and the Scarborough Shoal, historically all
claimed by China, resulting in several stand-offs with Chinese civilian vessels
in recent months.

The geopolitical reality is that virtually all of China’s
neighbours, including Japan, depend on China economically as their largest
trading partner. They are unlikely to wish to form an anti-China military bloc.
Nevertheless, they all welcome a free-ride on America's naval protection as a
strategic hedge against a rising China.

Meanwhile, China has been strengthening her naval defences in
the South China Sea. The refitting and commissioning of China’s first aircraft
carrier, the Varyag, an old Russian
model, was China’s first open demonstration of a clear intention to build a
blue-water navy. While China’s naval force still remains decades behind American
global naval assets, technology, readiness, outreach and manoeuvrability, military
strategists are becoming alarmed by China's advances in "A2/AD
(anti-access/area-denial)" capabilities, including mobile "aircraft-carrier
killer" missiles, as well as in “C5ISR” (Command, Control, Communications,
Computers, Combat Systems, Intelligence, Surveillance, and Reconnaissance), not
to mention high capabilities in cyber-warfare and space technologies. These are
being deployed and continually developed to deter and delay potential adversary
military deployment in case of a war over the Taiwan Strait, as Taiwan remains China's
predominant core interest. Click here

Mounting military tensions

China is becoming more and more alarmed at her neighbours’
increasing assertive rival territorial claims and at what seems to be a
tightening of military encirclement around China’s periphery. It is no surprise that on 24 July 2012 China moved quickly to
upgrade a county-level administrative unit to a new prefecture given the name
of Sansha ( 三沙, short for the three groups of islands in the south,
east and west in the South China Sea).
This is set up to “administer” several island groups and undersea atolls in the
area, including the Spratly, the Paracel Islands and
the Macclesfield Bank, right
in the heart of the disputed waters. The new prefecture-level administrative
unit, equipped with a new garrison, is
located on Yongxing 永兴岛(Woody) Island, the
largest of the Paracel and Spratly islands with an area of about 5 square miles,on which some 600 Chinese civilians currently live.

To counter China’s rising military capabilities, it is
reported that the U.S. military is planning a major expansion of missile defences
in Asia, to be located in regional allies such as Japan, South Korea and
Australia. At the centre of these defences is a powerful radar, the X-Band, to
provide an early-warning arc against potential hostile missile strikes from
North Korea or China. Click here At around the same time, the Communist Party-run
Global Times reported that China was developing a multiple-warhead ballistic
missile that could potentially overcome US anti-missile defences.

While China's rising military strength is perceived as a
threat by America and China's neighbours, many Chinese people, particularly
the young generation and some in the Chinese military, remain dissatisfied with
a perceived weakness in response to challenges to China’s sovereignty. Hence
the rising tide of Chinese nationalistic anti-Japan protests over the
Senkaku/Diaoyu island stand-off. These opposing forces, coupled with the
discovery of rich potential gas reserves in these waters, are driving negative
feed-back loops characteristic of a classical “security dilemma” between the
various players, including America. This feeds at best into a mistrustful Cold
War mentality and at worst runs the risk of misunderstanding, miscalculation,
and misadventure, which do not augur well for regional stability or world
peace.

Regional dynamics of China’s Rise

According to Professor Zhang Yuling and Associate Research
Fellow Tang Shiping, both of the Academy of Social Sciences in Beijing, in their joint paper "China’s Regional Strategy" in “Power Shift, China’s and
Asia’s New Dynamics”, David Shambaugh (ed.), University of California
Press, 2005, there
are four core concepts underpinning China’s current grand strategy for the
nation. The first dates back to Dr.Sun Yat –sen, modern China’s founding
father. It suggests that China, by virtue of its size, population, civilization,
history and economy, rightly belongs to the “great power club”. Second, China
needs a stable and peaceful international environment to continue its
development. Third, following the advice of Deng Xiaoping, until China has
become fully developed and possesses the necessary capacities, the country
should refrain from seeking leadership. This is his famous “buyao dangtou不要当头” strategy. Fourth, as China’s
ongoing economic welfare and national security depend on integration with the
world order, it would be in China’s interest to behave as a “responsive great
power” (fuzeren de daguo负责任的大国).

This grand strategy implies avoiding confrontation with the
United States as the world’s sole superpower, maintaining amicable relations
with neighbours, embracing multilateralism, and upholding a traditional
definition of national sovereignty that opposes foreign intervention unless expressly
authorized by the United Nations. In order words, as a matter of priority, democracy
between nations (not so much within nations) should be upheld.

Following this strategy, China has become the centre of the
region’s supply and production chain, making her economic growth a dynamic
opportunity for the region rather than a threat. China became the first nation
outside the ASEAN to sign in 2003 the Treaty of Amity and Cooperation in
Southeast Asia. She has now established the ASEAN-China Free Trade Area, the
world’s biggest by population size and has deepened her interest and
participation in the security confidence-building-measures (CBMs) at the ASEAN
Regional Forum.

However, for those with a “realist” zero-sum mindset, any
gain in China’s regional engagement can be interpreted as diluting America’s
regional dominance and therefore “may not be good for America”, as in the case of Robert
Sutter, Visiting Professor in the School of Foreign Service at Georgetown
University in “Power Shift" (ibid.) .

Nevertheless, China’s rise has been
characterized by the exercise of “normative” and “remunerative” rather than
“coercive” power, according
to Amitai Etzioni’s power classifications in “A Comparative Analysis of Complex Organizations”, revised ed., New
York: The Free Press, 1975.

This trajectory of “peaceful rise” conforms with an earlier
“new security concept” articulated by
China’s former Foreign Minister Qian Quichen, which consists of reassurance
based on cooperative security, dialogue, and mutual economic benefit.

China has therefore been operating within, and stands to
benefit from, a stable international order
largely underwritten by the United States. While a rising China can no longer unreservedly
accept America’s dominance, it would not be in China’s best interest to
dislodge the United States from the Asian region, let alone China’s current lack
of comprehensive capacity to do so. Seen in this light, “China’s rise in Asia
need not be at America’s expense”, according to David Lampton, George and Sadie Hyman Professor and Director of China
Studies at the John Hopkins University School of Advanced International
Studies, in “Power Shift" (ibid.)

Moreover, in the coming decades of the 21st
century, while the United States’ leadership is expected to remain, its
capacity to lead is likely to continue declining, according to the Report “Global Trends 2025: A Transformed
World”, National
Intelligence Council, Washington D.C, 21 November, 2008.

In an increasingly inter-connected and
inter-dependent world, there has emerged a host of complex challenges with
global dimensions, such as terrorism, piracy, nuclear proliferation and climate
change. As a diminished superpower, America needs to work more closely with a
host of state and non-state actors as well as allies and non-allies alike,
including a rising China, in maintaining global and regional order and
stability.

On the part of America, therefore, it would be undesirable
and unrealistic to arrest the historical trend of China’s rise. Even King Canute
could not command the tide.

Fractured regional peace and stability

For decades Asia has enjoyed relative peace and stability in
an Asian Order guaranteed by the United States as the world’s unrivalled
military and economic superpower .Within this order, Asian nations have
benefitted from rising trade, investment, technology and other flows within and
outside the region. China, in particular, has become the centre of a regional
production and supply chain and as the largest trading partner and a key driver
of economic growth for China’s neighbours. Through China’s active and
non-assertive participation in the ASEAN community and other regional forums, China has built
up a relatively cordial relationship with nations in the region. Territorial
disputes rose from time to time but have never threatened to undermine the
regional security system. This is because the system’s stability is supported
by China and America, the region’s two world-power adversaries, who have
embraced an inter-connected and inter-dependent relationship, which was coined
“chimerica” by historian Niall
Ferguson in 2006.

Now the regional security system appears to crack. This is due
to a looming split in the symbiotic relationship between the United States and
China. America is feeling the pain of outsourcing jobs to China. It has become
alarmed by excessive consumption of China’s goods through rising levels of
national debt financed by China’s largesse of buying up a vast quantity of U.S.
treasuries. On her part, after the lessons of the global financial crisis, China
has become aware of the risks of over-reliance on exports and the folly of
tying up so much of her hard-earned savings in a “U.S Dollar Trap.” Click here
Moreover, a combination of China’s rapidly growing economic and regional
influence, coupled with the country’s problematic political image and increasing
military capabilities, adds up to a pervasive sense of “China threat”. This
has resulted in unease, suspicion, and mistrust, if not paranoia. A “Great Sino-American Divorce” is now looming
on the horizon, according to Mark Leonard, Reuters Columnist and Co-Founder and Director of the
European Council on Foreign Relations. Click here.The growing regional
instability calls for a re-think for a more sustainable Asian Order to take
account of changed geopolitical realities.

Tentative Models for a future Asian
Order

David Shambaugh categorized the evolution of a new Asian
Order under different hypothetical scenarios in “The Rise of China and Asia’s New Dynamics”, his Introduction to “Power Shift" (ibid.) –

(a) an hegemonic system dominated by a rising China, either
coercive (badao霸道)
or benigh (wangdao 王道) in nature, predicated
on American withdrawal from the region;

(b) a zero-sum power rivalry between the United States and
China;

(c) a regional system of bilateral U.S military allies
centred on the United States as the hub, including Japan, South Korea, the
Philippines, Thailand and Australia;

(d) a delicate balance between regional powers in the kind
of stability which lasted for half a
century in the Concert of Europe in the wake of the Congress of Vienna of 1815;

(e) a regional power condominium between the United States
and China, accommodating China’s core regional interests;

(f) a normative community supported by institutionalization
of the “ASEAN Way” based on a consultative and consensual process upholding
individual sovereignty and statehood;

Whatever model or mixture of models may emerge in the long run,
there is no doubt how a rising China is engaged in the coming decades by the
world at large and by the region in particular would go a long way in shaping
what China may look like as a superpower. A deciding factor is the relationship
between the United States as the existing superpower and China as its perceived
rising challenger.

Prescriptions for a new Asian Order

In an article “The China Choice: A Bold Vision
for U.S.-China Relations” in The Diplomat, an international
current-affairs online magazine for the Asia-Pacific region, Hugh White, professor of strategic studies at Australian
National University and a visiting fellow at the Lowy Institute, advanced a
new power-sharing approach to avoid a possible
“deadly strategic rivalry”. Taking
realistic account of China’s rise as a regional power, White proposes a kind of
“Concert of Asia” where America would share power and partner with China as an
equal in maintaining Asia’s regional stability, accommodating or balancing
China’s core regional interests, along with those of India and Japan. The
article draws on his thought-provoking book “The China Choice”.

White’s “Concert of Asia” idea is heavily criticized as
unworkable by Rory Medcalf, director of the international security program at
the Lowy Institute, pointing to the impracticability of defining spheres of
influence between the core powers of this Concert and how medium-size states
like Australia could fit from the outside.

Nevertheless, White’s balancing approach in treating a
rising China as an equal regional power may well serve to build a more
sustainable US-China relationship. The challenge is how this can be achieved
without compromising the interests of America’s key regional allies.

China’s regional power, moreover, cannot be separted from the
country’s growing influence globally. Europe and China are increasingly
integrated economically as Europe has become China’s largest trading partner,
ahead of the United States. China’s footprint is almost ubiquitous in Africa
and is also spreading in Latin America, right in the backyard of the United
States. So balancing against China’s power cannot be confined to only the Asian
theatre.

Zbigniew Brzezinski, a doyen in American foreign policy and National Security Advisor to President Jimmy Carter from 1977 to 1981, has
recently advanced a global U.S. grand strategy Click here. It has two main strands.

The first is that he sees Europe as an
inseparable part of a Western whole which underpins US leadership. He
postulates that the US should act as “promoter and guarantor” of a renewed “Larger West” by drawing Russia and Turkey
into the European Union through
gradual democratization and eventual conformity with Western norms. (Paving
the way for Russia to join the WTO would be part of this trajectory.) At
the same time, instead downplaying Europe, he emphasizes the importance of
deepening the unification of the European Union through fostering close
cooperation among the key players of France, Germany, and the United Kingdom.

The second, and inter-related, strand is the
“Complex East”,
where the U.S. best interest would be served by acting as “regional balancer”,
“replicating the role played by the United Kingdom in intra European politics
during the nineteenth and early twentieth century.”

Seemingly echoing America’s “Pivot to Asia”,
he suggests that the United States “should help Asian states avoid a struggle
for regional domination by mediating conflicts and offsetting power imbalances
among potential rivals”.

However, contrary to the popular rhetoric of
American military power projection in the Asia-Pacific, he points out that “the
United States must recognize that stability in Asia can no longer be imposed by
a non-Asian power, least of all by the direct application of U.S. military
power. Indeed, U.S. efforts to buttress Asian stability could prove
self-defeating, propelling Washington into a costly repeat of its recent wars,
potentially even resulting in a replay of the tragic events of Europe in the
twentieth century. If the United States fashioned an anti-Chinese alliance with
India (or, less likely, with Vietnam) or promoted an anti-Chinese
militarization in Japan, it could generate dangerous mutual resentment”. He
recognizes that “in the twenty-first century, geopolitical equilibrium on the
Asian mainland cannot depend on external military alliances with non-Asian
powers”.

Instead, Brzezinski advocates that America
“should respect China's special historic and geopolitical role in maintaining
stability on the Far Eastern mainland. Engaging with China in a dialogue
regarding regional stability would not only help reduce the possibility of
U.S.-Chinese conflicts but also diminish the probability of miscalculation
between China and Japan, or China and India, and even at some point between
China and Russia over the resources and independent status of the Central Asian
states. Thus, the United States' balancing engagement in Asia is ultimately in
China's interest, as well.”

It is clear that Brzezinski’s Asia is a much
wider region which includes Central Asia connecting all the way to the “Larger
West”

A lynchpin of this realism is a “U.S.-Japanese-Chinese
cooperative triangle”to
be nurtured through progressive, but lasting reconciliation between China and
Japan, similar to that between France and German and between Germany and Poland
after World War II. In this context, “the guiding principle of the United
States should be to uphold U.S. obligations to Japan and South Korea while not
allowing itself to be drawn into a war between Asian powers.”

“In that context, China should not view U.S.
support for Japan's security as a threat, nor should Japan view the pursuit of
a closer and more extensive U.S.-Chinese partnership as a danger to its own
interests. A deepening triangular relationship could also diminish Japanese
concerns over the yuan's eventually becoming the world's third reserve
currency, thereby further consolidating China's stake in the existing
international system and mitigating U.S. anxieties over China's future role”.

What is perhaps the most striking in
Brzezinski’s China engagement strategy is his recognition of and suggestions
for resolving the three sticking points in US-China relations with suggested timelines:

(a) “First, the United States should
reassess its reconnaissance operations on the edges of Chinese
territorial waters, as
well as the periodic U.S. naval patrols within international waters that are
also part of the Chinese economic zone. They are as provocative to Beijing as
the reverse situation would be to Washington”.

(b) “Second, given that the continuing
modernization of China's military capabilities could eventually
give rise to legitimate U.S. security concerns, including over U.S. commitments
to Japan and South Korea, the United States and China should engage in regular
consultations regarding their long-term military planning and seek to craft
measures of reciprocal reassurance”.

(c) “Third, the future status of
Taiwan could become the most contentious issue between the two
countries. Washington no longer recognizes Taiwan as a sovereign state and
acknowledges Beijing's view that China and Taiwan are part of a single nation.
But at the same time, the United States sells weapons to Taiwan. Thus, any
long-term U.S.-Chinese accommodation will have to address the fact that a
separate Taiwan, protected indefinitely by U.S. arms sales, will provoke
intensifying Chinese hostility. An eventual resolution along the lines of
former Chinese leader Deng Xiaoping's well-known formula for Hong Kong of
"one country, two systems," but redefined as "one country,
several systems," may provide the basis for Taipei's eventual
re-association with China, while still allowing Taiwan and China to maintain
distinctive political, social, and military arrangements (in particular,
excluding the deployment of People's Liberation Army troops on the island).
Regardless of the exact formula, given China's growing power and the greatly
expanding social links between Taiwan and the mainland, it is doubtful that
Taiwan can indefinitely avoid a more formal connection with China”.

Brzezinski suggests that the first of these
sticking points be resolved in the near future, the second over the course of
the next several years, and the third probably within a decade or so.

Brzezinski ’s whole rationale
is summarized in his opening remarks - “The United States' central challenge
over the next several decades is to revitalize itself, while promoting a larger
West and buttressing a complex balance in the East that can accommodate China's
rising global status. A successful U.S. effort to enlarge the West, making it
the world's most stable and democratic zone, would seek to combine power with
principle. A cooperative larger West -- extending from North America and Europe
through Eurasia (by eventually embracing Russia and Turkey), all the way to
Japan and South Korea -- would enhance the appeal of the West's core principles
for other cultures, thus encouraging the gradual emergence of a universal
democratic political culture.”

Drawing a distinction from the historical
geopolitics governing the separate fates of the Eastern and Western Roman Empires,
Brzezinski opines that in a globalized and inter-connected world, “the West and
the East cannot keep aloof from each other: their relationship can only be
either reciprocally cooperative or mutually damaging”.

Conclusion

China’s re-emergence as a world
power signifies a turning of the tide in the flow of history. A classic drama
of transition with the status quo superpower, the United States, is playing out.
The fracturing of the Asian Order in which both powers are key players is a
clear manifestation. Containing or
confronting this transition militarily is fraught with uncontrollable risks - a “security dilemma” that has all the tendency of escalating into a regional if
not global war. Managing and accommodating it without sacrificing American interests
takes a great deal of insight and strategic thinking in the broadest context.

The increasing instability of
the Asian region calls for fresh thinking and maturity beyond military
manoeuvres. It is instructive that amidst China’s unease with large-scale U.S. joint
military exercises in the South China Sea, PLA deputy chief of general
staff Cai Yingting paid a three-day visit (25-27 August 2012) to Washington and
the Pentagon. The purpose is to reaffirm the development of a
"win-win" relationship based on "respect, fairness and
tolerance" between the US and China, paving the way for a subsequent visit
of US Defence Secretary Leon Panetta to China
the following month.

What is clear is that events
and developments in the Asian theatre are unlikely to follow any pre-scripted
model. Yet understanding the underlying dynamics may go a long way into better managing
the critical U.S.-China relationship, the most important bilateral relationship
in the 21st century.

August 17, 2012

Tensions with China are building up over the Diaoyu Island with Japan and over other disputed islands with other neigbours in the South China Sea. The geopolitical dynamics were discussed on Inside Story with Aljazeera English on 16 August 2012.

Apart from myself, the two other panelists appearing on the TV program were Bruce Klingner, a senior research fellow at The Heritage Foundation, a conservative US think tank; and Brett Bull, a freelance reporter who worked in Japan for 10 years.

(N.B. Midway in the program the credentials appearing beside me contain a serious error, not of my own making. It says I was a "Former Hong Kong rep to the UN". I had never worked in the UN and indeed, Hong Kong was and never will be a sovereign state to be able to send a rep to the UN. I have already requested Aljazeera to correct this glaring mistake.)

August 15, 2012

Such a suggestion appears in an article of 14 August 2012 in YaleGlobal, an online platform, with the tagline "Beijing Unflustered by Cool Ties With Seoul - South Koreans blame their government for deteriorating relations, as China stands pat". The article is authored by Scott W. Harold, an associate political scientist specializing in Chinese foreign policy and East Asian security affairs at The RAND Corporation, a US-based think-tank. Click here

South Korea is one of the largest investors in China, resulting in an estimated total of some 2.3 million South Koreans living in China, making it the largest ethnic Korean population living outside the Korean Peninsula. Many of South Korea's world-class companies leverage their global competiveness through their investments in China.

Recently, China, Japan, and South Korea have vowed to boost investment in each others' bonds, suggesting that the three Asian giants are very closely bound together economically. Click here

Managing relations with a recalcitrant North Korea is by no means a walk-over for China, though no doubt the North Koreans depend a great deal on China's largesse. But politcal chaos and instability in North Korea has been Beijing's main worry. Hence, China's discouragement of North Korean refugees as China would be the first and most to suffer from a North Korean refugee floodgate. All the while, China has been trying to get the North Koreans to reform (like China) and has been instrumental in brokering the famed six-party talks on North Korea's nuclear armament drive. For a stable and prosperous North Korea, along with a friendly and mutually-beneficial economic and diplomatic relationship with South Korea would be in China's best interest.

So while some observers, as in the case of Scott Harold in the Yale Global article, may view a fossilized North Korea as China's best bulwark, China does not appear to buy this. Indeed, there are now early signs that China's past efforts in getting North Korea to reform may finally appear to show some green shoots under the young Kim. A powerful military top-brass was recently relieved of his leading post and a more humane face of North Korea is beginning to appear, starting with Micky Mouse and Western music. More importanly, North Korea is now showing much more active interest in copying China's open economic model.

Naturally there are still nationalistic sensitivities to be managed between China and South Korea, not least of which is the history of Koguryeo. But history also shows that even in the not-so-distant past, a number of adjacient territories such as Mongolia (before independence in 1911), were part of the Chinese state. China has long recognised these historic realities, including territorial boundaries with South Korea and Russia, with the exception of a number of islands in the South China Sea and a border province in India.

Now Koguryeo remains only a matter of national cultural pride, not of territorial dispute. Even in terms of culture, both countries have long recognized and treasured their very close Confucian cultural affinities, including respect for elderly authority in the family.

Therefore, it is no surprise that across the entire spectrum of South Korea's political parties, a pro-active cordial relationship with China is dearly prized. And China would be the last to be reminded that notwithstanding understable differences in national priorities, cementing a closer China-South Korean relationship would be in China's best interest as well.

A cover story by Ron Unz, publisher of The American Conservative, appears in the journal's May 2012 issue in the form of a critical comparison between the U.S. and China's body-politic, posing the question as to "Which superpower is more threatened by its “extractive elites”?Click here

The title of the article "China’s Rise, America’s Fall" is over-hyped, as many Chinese would be the first to admit. Nevertheless, the author explains,

"In a recently published book, Why Nations Fail, economists Daron Acemoglu and James A. Robinson characterize China’s ruling elites as “extractive”—parasitic and corrupt—and predict that Chinese economic growth will soon falter and decline, while America’s “inclusive” governing institutions have taken us from strength to strength. They argue that a country governed as a one-party state, without the free media or checks and balances of our own democratic system, cannot long prosper in the modern world. The glowing tributes this book has received from a vast array of America’s most prominent public intellectuals, including six Nobel laureates in economics, testifies to the widespread popularity of this optimistic message".

"Yet do the facts about China and America really warrant this conclusion?"

"Meanwhile, the rapid concentration of American wealth continues apace: the richest 1 percent of America’s population now holds as much net wealth as the bottom 90–95 percent, and these trends may even be accelerating. A recent study revealed that during our supposed recovery of the last couple of years, 93 percent of the total increase in national income went to the top 1 percent, with an astonishing 37 percent being captured by just the wealthiest 0.01 percent of the population, 15,000 households in a nation of well over 300 million people".

"Evidence for the long-term decline in our economic circumstances is most apparent when we consider the situation of younger Americans. The national media endlessly trumpets the tiny number of youthful Facebook millionaires, but the prospects for most of their contemporaries are actually quite grim. According to research from the Pew Center, barely half of 18- to 24-year-old Americans are currently employed, the lowest level since 1948, a time long before most women had joined the labor force. Nearly one-fifth of young men age 25–34 are still living with their parents, while the wealth of all households headed by those younger than 35 is 68 percent lower today than it was in 1984".

"The total outstanding amount of non-dischargeable student-loan debt has crossed the trillion-dollar mark, now surpassing the combined total of credit-card and auto-loan debt—and with a quarter of all student-loan payers now delinquent, there are worrisome indicators that much of it will remain a permanent burden, reducing many millions to long-term debt peonage. A huge swath of America’s younger generation seems completely impoverished, and likely to remain so".

"International trade statistics, meanwhile, demonstrate that although Apple and Google are doing quite well, our overall economy is not. For many years now our largest goods export has been government IOUs, whose dollar value has sometimes been greater than that of the next ten categories combined. At some point, perhaps sooner than we think, the rest of the world will lose its appetite for this non-functional product, and our currency will collapse, together with our standard of living. Similar Cassandra-like warnings were issued for years about the housing bubble or the profligacy of the Greek government, and were proven false year after year until one day they suddenly became true".

"But if our government policies are so broadly unpopular, why are we unable to change them through the sacred power of the vote? The answer is that America’s system of government has increasingly morphed from being a representative democracy to becoming something closer to a mixture of plutocracy and mediacracy, with elections almost entirely determined by money and media, not necessarily in that order. Political leaders are made or broken depending on whether they receive the cash and visibility needed to win office".

"When parasitic elites govern a society along “extractive” lines, a central feature is the massive upward flow of extracted wealth, regardless of any contrary laws or regulations. Certainly America has experienced an enormous growth of officially tolerated corruption as our political system has increasingly consolidated into a one-party state controlled by a unified media-plutocracy".

"Ordinary Americans who work hard and seek to earn an honest living for themselves and their families appear to be suffering the ill effects of exactly this same sort of elite-driven economic pillage. The roots of our national decline will be found at the very top of our society, among the One Percent, or more likely the 0.1 percen".

"Thus, the ideas presented in Why Nations Fail seem both true and false. The claim that harmful political institutions and corrupt elites can inflict huge economic damage upon a society seems absolutely correct. But while the authors turn a harsh eye toward elite misbehavior across time and space—from ancient Rome to Czarist Russia to rising China—their vision seems to turn rosy-tinted when they consider present-day America, the society in which they themselves live and whose ruling elites lavishly fund the academic institutions with which they are affiliated. Given the American realities of the last dozen years, it is quite remarkable that the scholars who wrote a book entitled Why Nations Fail never glanced outside their own office windows".

Why Nations Failshows that truly democratic and inclusive institutions may take centuries to build, as in the case of Britain and the United States. It also flags up the importance of centralised state authority to maintain political stability including law and order, without which countries can hardly take off, as in the case of Colombia. It highlights the need for basic infrastructure such as shelter and schools in such failed states as Afganistan and certain countries in sub-Sahara Africa, where "conditional" development aid has been too much squandered by corruption and layers of aid bureaucracy to deliver. What is more, it shows how, even in democratic India with inclusive institutions, basic public services such as healthcare could break down because of collusion of health workers with local authorites.

All these examples seem to suggest that for countries at a relatively early stage of development, the need for infrastructural and livelihood improvements may be more immediate than building inclusive political institutions. Without a solid economic foundation, it is doubtful that inclusive institutions alone can feed the hungry masses, nor are they likely to endure. Indeed, as Dambisa Moyo says in "Dead Aid - Why Aid is not working and how there is another way for Africa", (Allen Lane, 2009), "What is clear is that democracy is not the pre-requisite for economic growth... On the contrary, it is economic growth that is a pre-requisite for democracy...." (p.43)

Ironically, while America seems to be turning more and more "extractive", the Communist Party of China (CPC), notwithstanding its deep-seated corruption and other foibles, has been making itself more and more "inclusive". Since China launched the Open Door Policy in 1978, the Party had succeeded in lifting more than 400 million peasants out of abject poverty. Right now, Deng Xiaping's old slogan of "letting a few people get rich first" regardless is outliving its usefulness. Former President Jiang Zemin introduced the doctrine of "The Three Represents" as political code to co-opt China's entrepreneurs, professionals, and others in the private sector into China's body politic so that they, too, would have a stake in the country's economic success. President Hu Jintao likewise ushered in the doctrine of "Harmonious Society" embedded in the current Five Year Plan (2011-15), designed to create a more equitable, more balanced, and more sustainable society.

For China, notwithstanding years of stellar growth, the development ahead remains uncertain and success is by no means guaranteed in face of mounting domestic and global challenges, including rampant corruption, acute inequalities, resource scarcity, worsening ecological strain, and rising social unrests. Complacency or self-congratulation is clearly no alternative to perennial reform, adaptation and transformation, if China under the CPC is to survive, let alone prosper.

The jury is still out as to which development model best suits China's own circusmtances.With increasing evidence of dysfunctional Western democracies, including destructive partisan politics, it seems unlikely that China would wish to abandan her well-tried experimental approach to finding her own development path - "groping for stepping stones in crossing a river" - and simply download a Western one-size-fits-all mode of democracy.

But the Bo Xilai affair has sounded very loud alarm bells of the resurgence of Maoist "extractive" vested interests. The Party leadership appears now to be more alive to the urgency of democratic reform, as Premier Wen Jiabao has repeatedly urged in the recent past.

What is instructive is the newly-announced promotion to full general of Liu Yazhou, Political Commissar of the National Defense University, a member of the Central Commission for Disciplinary Inspection, China's top anti-graft watchdog. He is also a prolific writer, a global strategist and a rare out-spoken young Turk for urgent democratic reform. He studied in the U.S. for ten years. and rose steadily through the ranks partly through the power of his pen. As the son-in-law of Li Xiannian, one of China's most-respected founding revolutionaries, he is one of the princelings exceptionally known for his integrity, frugal living, and hatred of corruption. He is well-chosen counterweight against any ramnants of the Bo Xilai clique who may choose to rear their heads at some future juncture.

An article "China must reform or die" on 12 August 2010 in the Sydney Morning Herald quoting General Liu says a lot about where he is coming from.Click here

With increasingly conciliatory responses to social unrests, a high-profile promotion of the Wukan model of open and fair village elections, and a newly released 468-page World Bank report jointly undertaken with the Development Research Centre of the State Council, which promotes a more inclusive society amongst a swath of other reforms ("China 2030: Building a Modern, Harmonious, and Creative High-Income Society"Click here ), there is likely to be more than meets the eye following the coming leadership transition in the autumn.

So, afterall, along with more inclusive economic institutions as proposed in the World Bank report, reform towards a more inclusive political system in China, whether Western democracy or democracy with Chinese characteristics, may be coming sooner rather than later.

August 07, 2012

In an article for Asian Horizons in The American Interest, May/June 2012 edition, John Lee, Michael Hintze Fellow for Energy Security at the Centre for International Security Studies, theUniversity of Sydney, and a scholar at the Hudson Institute in Washington, DC., outlines what he believes is the true nature of China's state capitalism, which he brands "China's corporate Leninism."

First of all, the role of the state in Western capitalism is not as separate as the John Lee article asserts. Think of the “military-industrial complex” forwarned by President Eisenhower and the current Occupy Wall Street Movement driven by the 1% and 99% American economic divide.

What the article doesn’t explain is why China’s model of state-capitalism has so far proved to be rather successful.

The answer is that first, for a vast developing country in rapid transition, physical infrastructure is the foundation for economic development. By concentrating power, the state is in a much better position to mobilize resources to build essential highways, power grids, and new cites from scratch, driving the country’s ongoing industrialization and urbanization.

Second, learning from South Korea’s “chaebols”, China wants to grow her own “national champions” that hold sway in the international marketplace and are in a better position to acquire the resources and skills to underpin on-going development.

Third, contrary to what the article asserts, the strategic industries reserved for state-owned enterprises are actually part of a broader “defence of the realm” concept. Nascent strategic industries like aviation and finance are liable to be decimated if foreign competition is left entirely unchecked. Memories are still fresh of the economic havoc in Latin America and the former Soviet Union played by indiscriminate liberalisation quick-fixes under the so-called Washington Consensus. What is more, sectors like energy and telecommunications are also regarded as having national security implications by Western countries. That's why China's earlier attempts to acquire equity stakes in these sectors in the United States got back-fired.

Last but not least, as China’s economy evolved, so did her political power structure. A relatively recent change was formalized through President Jiang Zemin’s “Theory of the Three Represents”. This is a political code-word to ensure that the interests of the business sector and new intellectual elites (the “advanced productive forces”) along with the majority of the masses are brought into China’s body politic so that they also become beneficiaries of China’s state-driven development.

This inclusiveness is almost inevitable if only to pre-empt the kind of eventual collapse faced by "extractive intitutions" which characterized early Western autocracies like the ancien regime of Louis XIV or past Western colonial empires, as described in Daron Acemoglu and James A Robinson's thought-provoking book, Why Nations Fail, Profile Books, London, 2012.

The article in question mentions that three-quarters of the Chinese Communist Party now consist of the business, professional and academic elites. This is extremely instructive as this changed composition makes the political system relatively more inclusive.

The fact remains that the vast majority of the Chinese people are more satisfied with the way the country is developing, according to a new 21-nation survey in July 2012 of the PEW Research Centre’s Global Attitudes Project. According to the study, "The Chinese, in particular, are positive about their economic situation, with nine in 10 saying they’re better off than the previous generation, eight in 10 satisfied with current national economic conditions, seven in 10 feel financially more prosperous than they were five years ago and more than two-thirds happy with their own personal economic circumstances." "The outlook for the long term is bleak in most places with the exception of China, the only nation surveyed where a majority of respondents expressed confidence that their children’s future would be brighter". Click here

By allying the interests of the vast majority with the long-term interests of the state, the Chinese Communist Party is turning the Party into a government for the people, though not, as yet, of or by the people.

Nevertheless, after years of breakneck growth, all is not well. China is now at an inflexion point with rising levels of social discontent, sharpening inequalities, lack of social justice, rampant corruption, dwindling profit-margins, inefficient allocation of capital by state-owned enterprises, a looming aging population profile, ecological strains in an age of resource scarcity, and the rising aspirations of a more educated, economically more independent and internet-savvy middle-class.

Hence, China is now changing tack rapidly, as evident from the latest Five Year Plan (2011-15) and a recently-released 468-page World Bank report “China 2030: Building a Modern, Harmonious, and Creative High-Income Society". The latter has been jointly undertaken with the Development Research Centre of the State Council. It is an open secret that Li Keqiang, China’s likley next Premier-in-waiting, is a strong supporter of the Report. Amongst its main recommendations are proposals to address the repressive "hukou" system, reform of the state-owned enterprises, promotion of civil society including NGOs, and moves towards a more balanced, more creative, more equitable, more tolerant and more environmentally-sustainable society. Click here

President Hu Jintao mentioned openly the D-word more than 60 times at a Party Congress in October 2007. What is unlikely to happen, however, is a simple downloading of Western adversarial and often dysfunctional multi-party democracy. All said, China is likely to continue quest for her own form of democracy best suited to her unique economic, social, cultural, political and historical circumstances, in keeping with the changing times.

August 02, 2012

"China’s affluence crisis" in the Opinion Column, Reuters, 31 July, 2012, is penned by Mark Leonard, Co-Founder and Director of the European Council on Foreign Relations, the first pan-European think-tank, Young Global Leader of the World Economic Forum, and author of two best-selling books, "Why Europe will run the 21st Century" (2005) and "What does China think?" (2008), both published into many languages. Click here

For comparison, Mark Leonard evokes J.K. Galbraith’s seminal work, "The Affluent Society", which was a critique of the obsessive focus on GDP growth and production in the United States in 1958, producing at the end “private affluence and public squalor”.

Galbraith lays bare the hazards of individual and social complacency about economic inequality. He challenges why work and productivity are worshipped when so many goods are not really needed, and why public works spending has fallen by the wayside while extravagance in the private sector is tolerated, if not condoned.

In America in the 50’s and 60’s, public squalor was portrayed more in the context of inner cities, which remains a problem today even in the most advanced cities like New York. However, the more glaring challenge now is America’s crumbling transport infrastructure, which is only recently beginning to be addressed.

For China, however, whose gleaming super-highways and high-speed train network are now the envy of the world, the main challenge of public squalor is the country’s environment and ecology, which have paid a heavy and lasting price in the pursuit of breakneck economic growth.

But far more threatening for China are, first, the acute economic and social inequalities. The vast surplus pool of migrant labour, though beginning to dwindle as China’s demographics are starting to age, has been trapped by the so-called “hukou” system in social and economic deprivation. Likewise, the hard-earned savings of the population, not just of the migrant labourers, are also trapped in a system of “financial repression” in the form of extremely low deposit interest rates. In the absence of a more vibrant financial services sector, such savings have only limited and often volatile and insecure outlets such as the largely immature stock markets on the Mainland. This huge reservoir of cheap funds has been financing much of the state-owned banks' largesse.

This whole socio-economic system is not unlike some of the “extractive institutions” in the West’s earlier colonial era as described in “Why Nations Fail – The Origins of Power, Prosperity and Poverty” (by Daron Acemoglu and James A. Robinson, Profile Books, London, 2012). As the society has become more affluent and relatively more open, this stark social divide is no longer politically sustainable. Deng Xiaoping’s initial recipe of “Letting a few people get rich first” is now clearly past its sell-by-date.

Another critical challenge facing a rapidly-changing China in transition is the very product of China’s economic growth - a burgeoning middle class – as some 7 million university graduates are being churned out every year. This younger, internet-savvy, and more educated middle-class is becoming restless not so much to fight for more economic benefits, but to satisfy rising aspirations for individual liberty, freedom of expression in whatever form, including dissent, social justice, greater representation, and conservation of the environment.

In any case, while economically China’s rising affluence is for all to see, China as a country remains relatively poor in per capita terms, ranking amongst the world’s poorest compared with some African nations. Indeed, even if Goldman Sach’s much-hyped projection of China’s economic trajectory is eventually realized, by 2050 when China’s economy is forecast to exceed by some 84% that of the United States (on par with the size of India’s expanded economy by that date), China’s per capita GDP would still remain a small fraction of that of the U.S., perhaps equal to that of the per capita GDP of a middle-income country like Turkey (When China Rules the World, Martin Jacques, Allen Lane, 2009, Figure 1 p.3 and Figure 23, p.230).

At the 17th National Congress in October, 2007, President Hu Jintao set the target of achieving an all-round moderate-income society by quadrupling the per capita GDP of the year 2000 by 2020. China’s per capita GDP grew to $5,430 in 2011 (World Bank), already well exceeding the original target by 2020. This still pales in comparison with some of the middle-income countries like Malaysia ($9,656) and Turkey ($10,498). These statistics hides the fact, amongst other things, that much of China’s growth has been driven by labour-and-resource-intensive exports depending on imported proprietary technologies.

In an opening address on 3 September, 2011 in Beijing, Robert B. Zoellick, World Bank Group President, highlighted the challenges for China in avoiding the so-called “Middle Income Trap” – that stage when countries reaching about $3,000 to $8,000 per capita income seem to stall in productivity and income growth. The opening session is for a Conference to critique and refine the initial findings of a joint project on China’s medium-term development challenges up to 2030, undertaken by the Development Research Centre of the State Council, China’s highest decision-making body, and the World Bank. Click here

Zoellick points out that China’s policymakers know what needs to be done, as evident from a changed policy direction in the 11th and 12th Five Year Plans. These focus on quality of growth, expansion of domestic demand through higher consumption, structural reforms to spur innovation and economic efficiency, and social inclusion to overcome the rural-urban divide and income inequality.

Nevertheless, in the midst of an uncertain world entering into a “new danger zone” with stalling Western economies, a looming European sovereign debt crisis, volatile commodity prices and surging food prices, Zoellick raised the following timely questions:

“How can China manage the shift from an intense focus on economic growth to a broader approach that highlights quality of growth, inclusive growth, sustainable growth – and the well-being of all Chinese citizens?”

“How can Chinese policymakers sustain economic growth while protecting the environment and using natural resources efficiently, and how can China transition toward green development? How can pricing policies assist?”

“What will it take to help China adjust to rapid urbanization – from 50 percent of the population living in cities today, to almost 70 percent in 20 years?”

“How can policymakers modernize the country’s fiscal and financial systems -- aligning revenues with expenditure responsibilities at different levels of government and placing all expenditures “on budget”?”

“How should policy makers address the roles of state and market, and private and state-owned enterprises? More fundamentally, perhaps – what should be the role of the state in China – with respect to land, labor, markets, and the rule of law?”

“What about rethinking the organization of public management, and the shift from administrative management to rule-based policies?” “How can China best encourage open innovation – in products, systems, and technology – in ways that connect that innovation with the global network of ideas?”

“How should China interact with the international economy? China is already a key stakeholder in the world economy. Looking forward, how can China be a responsible international economic stakeholder, serving as a key partner in finding global solutions and sharing mutual responsibilities?”

“And – perhaps the most important question: How can China best draw on the talents, energy, and creativity of its people? In the next five years, more people will be leaving the Chinese workforce than joining it. How can policymakers ensure that the Chinese people can adapt, innovate, and play an active role in the healthy and positive process of change?”

These questions are shorthand for the gripping issues China has to contend with in overcoming the Middle Income Trap.

Additionally, when J.K. Galbraith questioned the essential utility of much of the goods produced by a consumer-centric development model, he probably did not expect that not only does this culture of “consumer sovereignty” tend to push investment in public infrastructure to the sideline in some countries, but that it begs the very question of how sustainable is this culture if it is spread to the rest of an increasingly resource-and-ecologically-challenged globe when a large swath of the world’s humanity is chasing the so-called “American Dream”.

So it is no surprise that China is changing tack quietly but quite dramatically. Apart from the new Five Year Plan (2011-15), the now-released joint 468-page report of the World Bank and the Development Research Centre of the State Council - "China 2030: Building a Modern, Harmonious, and Creative High-Income Society" - may give a glimpse of the shape of things to come. It is an open secret that China’s likely Premier-in-waiting, Li Keqiang, is the report’s main supporter. Amongst its recommendations are proposals to address the “hukou” system, to liberalize the financial sector, to promote a more vibrant civil society, and to reach out for a low-carbon future.